THE frenzy unleashed by the demonetisation of 1000 and 500 rupee currency notes has entered the third week. The Indian economy is still decelerating and in a sense imploding. The first assessment of the likely impact of the currency debacle on GDP growth has come from AMBIT, who has revised the GDP growth rate for 2016-17 from 6.8 to 3.5 percent. They estimate the growth in the current quarter to be in the negative. I find it difficult to reconcile with such a precipitous fall but, the Indian growth story has been tripped. The most immediate impact of demonetisation has been on trade which in turn has adversely impacted output. The output in the unorganised sector has been severely disrupted with small producers, starved of working capital and the wage labourers, their wages. The post harvest prices have nosedived and farmers find themselves to be helpless to purchase seeds or fertilisers. It is proving to be an unparalleled economic blunder.

All this for what purpose? Modi would like us to believe that these are short term pains for long term gains. Short term pain is too light a manner to describe the present situation. But in the long term, have no doubt, it is going to be business as usual. As has now been dinned in by critiques one after the other, black money is not a stock but a flow. It is something that is constantly generated in the process of crony capitalism through myriad ways. The black money owner, but for the likes of bourgeoisies politicians are not hoarders of money, but capitalists who throw money into the process of production or invest it in assets for capital gain. Therefore, black money in the form of currency is only a brief moment in the circulation of black money into the process of production or the round trip it makes through foreign countries. The whole exercise targets only a very small portion of the total black money in the economy, which would be much smaller than the loss suffered by the real economy, in terms of production, not to mention the sufferings of the people.

A collateral damage of the Tughlaqian reform has been the Credit Cooperatives in India, which virtually have been forced to pull down their shutters. This is particularly so for the Cooperatives in Kerala which for the last one decade have been resisting the imposition of Vaidyanathan Committee recommendations. It may be remembered that the Credit Cooperatives in Kerala have been the strongest in India with crores of accounts and more than Rs 1.2 lakh crore in deposits (PACS alone). It may be noted that the deposits in commercial banks in Kerala would be only Rs. 3.7 lakh crores. It accounts to more than 50 percent of the total cooperative deposits in the country. The Cooperatives in Kerala have a tradition dating to the renaissance movement and are supported by powerful grass root level movements rather than being mere bureaucratic appendages of State machinery.

As part of the neo-liberal reforms, the central government has been insisting that the Credit Cooperatives must withdraw from all non credit activities. This is not acceptable to Kerala for the simple fact that the Credit Cooperatives have been the main agency for the provision of a large number of services like fair markets, commodity procurement, medical stores, laboratories, hire purchase, leasing of agricultural implements and so on. In the context of democratic decentralisation, the cooperatives were expected to partner with the local governments. It was indeed a major landmark achievement of this cooperation when the Cooperatives financed, nearly Rs 3000 crores for the EMS housing scheme implemented by the local governments. The RBI has been threatening to remove the right of the Cooperatives to retain their nomenclature as banks. This, the Cooperatives refused to do, because it would have denied them the right to mobilise deposits from the public. There were other minor irritants like the court case against collection of income tax from the profit of the Cooperatives and denial of tax incentives for the deposits with them, which they had been enjoying for long. The central government and the RBI are utilising the present moment of crisis to teach the Credit Cooperatives a lesson. They have effectively blockaded their functioning, generating a run on the Cooperative Banks.

One, the depositors in primary agricultural credit societies (PACS) have been denied the right to withdraw even a single rupee from their accounts, while depositors in commercial banks are permitted to withdraw Rs 24,000 per week. This has created not only unbearable misery and economic hardship, but also loss of confidence to an extent in the cooperatives.

Two, the agents of new generation banks have started to actively scout for cooperative deposits. They suggest that the money from the cooperative deposits, if drawn through a draft and re-deposited in a commercial bank account, the account holders will be permitted to withdraw Rs 24,000 per week. Many of the PACS have accounts in commercial banks and pressure is mounting on them to transfer their deposits into these commercial banks.

Three, so far the PACS have been complying with the above request for transfer of deposits in order to not create a situation of panic. But in a mischievous move, RBI has denied the banks access to their money invested in apex banks or other friendly commercial banks. This is not a small amount - it would come to around Rs 40,000 Crores. Each PACS is considered as an individual account holder and is permitted to withdraw only Rs 24,000; because of which the entire functioning of the PACS has come to a standstill.

Four, as a result, panic has started to set in. Possibly, the RBI would be relaxing the restrictions in a fortnight or two. By then, the damage would have already been done. There would be a run on the PACS. Perhaps this is the first time in our history that the country’s Reserve Bank is involved in creating bank run.

The District Cooperative Banks were permitted to undertake banking activities like other commercial banks, including the right to exchange OHD currency notes. A delegation of the chief minister and the finance minister of Kerala had met the union finance minister Arun Jaitley. Jaitley agreed to consider sympathetically the demand to treat PACS on par with the apex cooperatives. But when the final order came, even the right of the District Cooperative Banks to deal in OHD currency notes was taken away by the RBI.

In this circumstance, the whole cabinet went on a satyagraha in front of the RBI Regional Office in Trivandrum. A special session of the Kerala legislative assembly was called to discuss the crisis and passed a unanimous resolution with the exception of the lone BJP member. An all party delegation wanted to meet the prime minister. The prime minister of the country declined to give an appointment. So, Kerala is moving in to a mass struggle to protest the insult to the state and protect our cooperative heritage. A Black Day is being observed and day and night dharnas are being organised. Have no doubt, Kerala is going to be in the forefront of the national protest on November 28.